Coffee Market Report

With the most of the coffee export registrations for the month in place, the authorities in Vietnam have forecasted coffee exports of mostly robusta coffees for the month of July shall be 17% higher than the same month last year, at approximately 2.17 million bags. This number they say shall see coffee exports for the first ten months of the present October 2015 to September 2016 coffee year to be 30.6% higher than the same period in the previous coffee year, at a total of 24.17 million bags.

It has to be noted that this official month of July export forecast is a little light against the forecasts by the countries traders and exporters, who have been forecasting numbers of between 2.42 million and 2.66 million bags, but the official forecast is nevertheless impressive. If one is to extrapolate the official forecast and assume exports of in excess of 4 million bags due for the last two months of the present coffee year and to add the approximate 1.7 million bags of domestic consumption for the year, it would indicate coffee absorption for the coffee year of approximately 30 million bags.

There has been some question as to the size of the last Vietnam harvest with numbers from the trade and industry and the U.S. Department of trade and industry that vary between 26.5 million and 29.3 million bags, but with the record carryover stocks into the past crop having been assessed to have been between 5 million and 8 million bags, Vietnam has had no problem to carry on with their high volume export performance. This impressive export performance has though been very necessary, in light of the drying up of export supply of conilon robusta coffees from the smaller Brazil conilon crop and likewise from the tighter supply of robusta coffees from the new Indonesian crop.

Thus while the indication is for good carryover robusta coffee stocks into the new Vietnam crop that shall be harvested from October to December this year, this crop has been widely forecasted to be approximately 2 million bags lower than the past crop, which shall see the country relying upon the liquidation of their still impressive stocks, to fulfil longer term consumer market robusta coffee demand. Especially so as their shall be no possible recovery for Brazil and Indonesia robusta coffee supply until the end of the second quarter of next year and on the shorter term, there is a weather related modest dip in Ugandan robusta coffee supply.

With the growth albeit modest for the present in global coffee supply being dominated by the price sensitive new markets and the producer country domestic markets, this growth is leaning heavily towards the lower price robusta coffees. Thus with global robusta coffee supply likely to be relatively close to demand for the foreseeable future there is encouragement for traditional arabica producer countries to look to the production of robusta coffees within their lower altitude regions which are not suitable for or being utilised for arabica coffee farming. This is already taking place in Mexico and Guatemala and now the domestic coffee roasting industry in Costa Rica are lobbing their government to lift the ban on robusta coffee farming, so as to expand their coffee farming into the lower altitude districts and to assist to bring more affordable coffees to their domestic roasting industry and by nature, allowing for a higher percentage of their arabica to be allocated to the export markets.

The September to September contracts arbitrage between the London and New York markets narrowed yesterday, to register this at 59.37 usc/Lb., while this equates to a 42.05% price discount for the London robusta coffee market. This arbitrage remaining relatively attractive to roasters in comparison to arabica coffee prices, continues to inspire support for the robusta coffee sector of the industry.

The Certified washed Arabica coffee stocks held against the New York exchange were seen to decrease by 7,089 bags yesterday; to register these stocks at 1,302,563 bags. There was meanwhile a larger in volume 9,440 bags increase to the number of bags pending grading for this exchange; to register these pending grading stocks at 13,815 bags.

The commodity markets were mixed in trade yesterday with the U.S. dollar continuing to take a steady track for the day and with the overall macro commodity index, tending softer for the day. The Natural Gas, Cocoa, Corn, Soybean, Gold and Silver markets nevertheless had a day of buoyancy, while the Oil, Sugar, Coffee, Cotton, Copper, Orange Juice and Wheat markets had a softer day’s trade. The Reuters Equal Weight Continuous Commodity Index that is made up from 17 markets is 0.47% lower; to see this Index registered at 418.97. The day starts with the U.S. dollar near to steady and trading at 1.318 to Sterling and 1.107 to the Euro, while North Sea Oil is steady in early trade and trading at 42.35 per barrel.

The London and New York markets started the day yesterday on a steady note and with the New York market tending to remain north of par, while the London market tended to remain south of par and with both markets maintaining this sideways track into the afternoon trade. As the afternoon progressed the New York market slipped back and moved into negative territory while London market remained close to par, but with the New York market bouncing back later in the day to more modest negative territory. The London market ended the day on a softer note and with 87.5% of the modest losses of the day intact, while the New York market ended the day on a modestly negative note and having recovered 80% of the earlier losses of the day by the close. The technical picture for the markets does not look very positive but with the markets having the ability to shrug off negative pressure and to remain close to par by the close of the day yesterday, it might well encourage a steady start for early trade today against the prices set yesterday, as follows:

LONDON ROBUSTA US$/MT          NEW YORK ARABICA USc/Lb.

JUL 1796 – 7
SEP 1804 – 7                                        SEP  141.20 – 0.40
NOV 1824 – 10                                    DEC 144.35 – 0.40
JAN 1842 – 9                                      MAR 147.30 – 0.35
MAR 1852 – 9                                     MAY 149.00 – 0.35
MAY 1866 – 9                                       JUL 150.35 – 0.30
JUL 1878 – 8                                         SEP 151.60 – 0.35
SEP 1890 – 7                                        DEC 153.35 – 0.35
NOV 1909 – 7                                     MAR 155.10 – 0.30
JAN 1918 – 7                                       MAY 156.05 – 0.25